The prior newsletter discussed the documentation that should be maintained for a construction project. This article will discuss how that documentation should be incorporated into a construction claim.
First, it is necessary to discuss what must be established to prevail on a claim. For the purpose of this article, a construction claim is a demand for payment of additional compensation, adjustment of the parties' respective contract obligations, or any other change in the contract compensation or terms. In presenting a disputed claim to the party with whom you are contracting it is necessary to establish the other party's liability for the claim (often referred to as "entitlement") and that the amount of the damages sought (often referred to as "quantum") are correct. Generally, if you are unable to establish both aspects of the claim you will not prevail. Thus, establishing liability and damages of are equal importance. Nonetheless, many claimants focus on the entitlement issues with the end result being that the damages are not properly established.
Proving entitlement to prevail on a claim is generally a matter of making a correct legal interpretation of whether not the facts as applied to the relevant contractual provisions allow the recovery of additional compensation. As a practical matter the provisions of the construction contract incorporate the plans and specifications. Therefore, the proper legal interpretation of the plans and specifications is essential.
The actual analysis of the facts that entitle a claimant to recover the extra costs typically includes an objective review of the scheduling, plans, specifications, building codes and standards of the industry. Many claim presentations include expert opinions. Obviously, the application of the facts to the relevant contract provisions must be made on a case-by-case basis and is beyond the scope of this article.
Establishing the quantum aspect of the claim also requires an objective analysis of the costs associated with the additional work. If the contract does not establish a method for determining the additional costs (e.g. T&M), the claimant should rely on cost accounting principals to quantify the damages. The type of claim will generally dictate the method for calculating damages. However, the types of costs that are considered include: home office overhead, job site overhead, material costs, labor costs and equipment costs. Once again such a discussion cannot be properly treated in this article.
The remainder of this article will discuss the general format of a construction claim and set forth where the project documentation should be incorporated. Generally, a claim should be presented in the following order:
All but the smallest claim should be presented in a bound package. Three ring binders are preferable for freedom in gathering and refining the supporting documentation. While not critical to prevailing on a claim, a cover sheet and index at the front of the claim presents a professional appearance.
Executive Summary sheet
The executive summary is intended to be a short and concise overview of the nature of the claim and why the other party should be obligated to grant the claim. The executive summary should be a page or less and should be followed by a List of Each Separate Claim.
The Actual Claim Analysis
Typically, a construction claim will be comprised of a number of individual claims that require separate analysis of the basis for entitlement and the amount of the damages that are being sought. The body of the claim should include a separate section for each individual claim.
The review should include the following:
Claim # 1: Provide a simple descriptive title for each claim.
A. Summary of Claim
Briefly describe the basis for the claim and the amount sought.
B. Underlying facts
This section should include a brief summary of the relevant facts that support the claim.
C. Entitlement Analysis
This section should include the rationale behind your contention that the contract, including the plans and specifications, allows for the additional compensation you seek. Additionally, this section should set forth an analysis that applies the relevant facts to the contract provisions and any other legal basis for prevailing on the claim.
D. Quantum Calculation Analysis
The exact amount of the additional costs that are being sought should be set forth in this section. The section should set forth the actual calculation that is the basis for the amount sought.
For example, if the Eichealy formula is used to determine home office overhead, the actual formula should be set forth in this section. In addition, the legal rationale and/or accounting rationale for using that particular formula for calculating home office overhead should be discussed.
E. Factual Support for Claim
The next section should list all the relevant documents that support the claim.
- Contract Provisions That Support Entitlement and Quantum Calculation
The relevant contract provisions should be set forth in this section.
- Chronology of Events and Correspondence
In a columnar format, the key date and then a description of what occurred on that date should be set forth. Key dates should, at a minimum, include: (a) when the claim work was discovered, (b) when the claim work was reported, (c) when the claim work was started, and (d) when the claim work was completed.
- List of documents relating to the claim
In this section list all the documents that support the claim. The documents should include: (i) specifications, (ii) drawings, (iii) relevant correspondence, (iv) clarifications and requests for information schedules, (v) change order and RFI logs, (vi) photographs, (vii) schedules, and (viii) any other relevant documents.
Each claim should be supported by separate copies of the relevant specifications, drawings, clarifications/requests for information, schedules, job diaries, RFI change order logs, submittal logs, correspondence and similar documentation.
The claim format set forth in this article is a general outline of what should be included in a claim. The actual format should be modified to present the claim in a persuasive manner.
Since many contracts require the claim to be submitted in a particular format at a particular time and updated on a particular, set schedule, you should review your contract to determine what contractual obligations exist. If you fail to follow the contractual mandates relevant to the claim presentation, your claim may be barred. Therefore, if the contract mandates the format of the claim you should follow those requirements.
If you are inexperienced in preparing a claim document you should seek the guidance of competent consultants who specialize in construction and have experience preparing and advocating the claim. Such consultants include construction law attorneys, construction claims consultants and accountants who specialize in such claims.
Irrespective, the author recommends that you start a three ring binder with sections based on the aforementioned claim format as soon as you recognize the claim. As the claim is refined you should supplement the claim by adding new supporting documentation and refining the claim analysis. The sooner you start organizing the claim and gathering the supporting documentation, the easier it is to prepare the final claim document when the project is ready to be closed out.